18 September, 2015

‘US banks rigged $12.8 trillion market’

“Dealers
including top American banks which control the $12.8 trillion US
Treasury market rigged bond auctions for years, Bloomberg reports.
Citing a federal antitrust lawsuit, the financial data and news
provider says the likes of Goldman Sachs, JPMorgan, and Morgan
Stanley coordinated to manipulate Treasury auctions. The 115-page
lawsuit has been filed in Manhattan federal court by a number of law
firms against 22 primary dealers 'who serve as the backbone of
Treasury trading', Bloomberg said. It comes as the US Justice
Department probes whether information in the Treasury auction market
is being shared improperly by financial institutions.”

“The US
Treasury market helps set interest rates on everything from home
mortgages to credit cards and is often described as the largest,
most-liquid market in the world. Earlier this year, Bloomberg
revealed that US Treasury traders at some banks learned of customer
demand hours before auctions, and were communicating with their
counterparts at other firms via chat rooms as recently as last year.”

“The US
Treasury initially sells bonds to primary dealers like Goldman Sachs,
JPMorgan and Morgan Stanley who in turn sell them to clients,
creating a secondary market for trading. A probe into their practices
found that more than two-thirds of a certain type of Treasury auction
have been rigged from 2009 to 2015 while there were issues with other
auctions, too. 'The only plausible explanation is that Defendants
coordinated artificially to influence the results of the auctions in
the primary market,' according to the lawsuit.”

“The
dealers artificially boosted yields while lowering prices when
auctions were initially issued before selling them at higher prices
and correspondingly lower yields in the secondary markets, an
analysis of their dealings found. The analysis has been conducted by
a New York University adjunct associate professor whose technique
helped uncover rigging of the London interbank offer rate, or Libor
which resulted in about $20 billion of fines. According to Bloomberg,
a similar lawsuit has been filed against Wall Street dealers who are
accused of colluding to push prices artificially low at auctions, and
to drive prices for when-issued securities to artificially high
levels.”